World View : Is Global Recession Coming? Good Question : Many experts see signs of sluggish growth. But the U.S. is treated like Chicken Little.

Seldom has it been more crucial for the world's economic policy-makers to be able to answer that question, but at the end of their semiannual meetings last week, finance ministers and central bankers from the United States and its major economic allies were far from agreement. They left town having done little more than paper over their differences with diplomatically worded communiques--leaving the rest of the world, whose economic well-being is tied to the industrial economies, facing an uncertain future.

Although the official economic forecasts almost all call for generally sluggish growth in the United States, Japan and Europe (see chart on Page 5), most analysts say the situation is still precarious. The Bush Administration argues that the prognosticators are being dangerously optimistic. In its view, only a concerted effort to cut interest rates can keep the recession--thus far confined to the United States, Britain, Canada and Australia--from spreading worldwide.

But this country's main industrial allies seem to be affording the Administration all the credibility of Chicken Little. Led by Germany and Japan, economic policy-makers from the powerful Group of Seven industrial countries insisted upon staying their divergent courses. The U.S. prescription is self-serving, they said, and a guarantee of inflation that would only cut short any real economic growth.

"U.S. arguments are not only unpersuasive," sniffs London's Financial Times, "they are cheeky."

Who's right?

Who knows? shrugs Jean-Claude Paye, secretary general of the Paris-based Organization for Economic Cooperation and Development. "This is the period (in the economic cycle) when the greatest uncertainty exists on the forecasts."

Moreover, in the eyes of some critics, what policy-makers have been debating this past week does not even address the real issue: It is not just interest rates that will determine the fate of the world economy, but rather whether the industrial countries can repair their fragile financial systems.

Unless they do, the bitterly fought interest rate question is moot, because there will be no capital to finance a recovery.

The reason is that the recession in the United States--and to some extent, the slowdown elsewhere--is not the result of a slowdown in manufacturing, as traditionally has been the case, but stems mainly from a collapse in the value of real estate and other assets, dampening spending and investment.

A. Gary Shilling, who runs an economic forecasting firm in New Jersey, warns that the impact of any interest-rate reduction--including the U. S. Federal Reserve's cuts last week--will have little effect if bankers saddled with portfolios of bad loans continue to be wary of lending.

"When bankers are so scared, it does not make much difference what the interest rate is," Shilling argued. He and others contend that the danger of recession will not abate until the financial system is repaired and confidence is restored.

Steve Axilrod, a former Federal Reserve staffer who is now a vice president of Nikko Securities in New York, agrees. "The financial problems we've got are the end of a large-scale speculative bubble."

What makes it all so scary is that the disagreement comes amid a bevy of new dangers that go well beyond the differences in forecasts:

* Negotiations aimed at lowering trade barriers worldwide are showing some progress after collapsing altogether last December. Bad economic times, however, often lead the other way--to protectionism--and the heavily indebted countries of Asia, Africa and Latin America will suffer worst if larger countries do not open their markets.

* Eastern Europe and many developing countries, having taken the capitalist leap of faith that markets can do a better job than government planners in running their economies, must now attract private investment to survive. An economic downturn could be the death blow to their already difficult efforts.

* The Gulf War has left the poorer countries of the Middle East devastated, and some of the richer ones too consumed by their own rebuilding to help out. With Western economies running out of steam, many wonder who will have the money to do the reconstruction.

* With a few notable exceptions such as Mexico, Latin America is limping along with little progress to show in boosting its economic prospects. Third World countries in Africa and elsewhere seem to be falling even further behind.

* Both Germany and Japan, the twin engines of world growth in previous years, are facing precarious financial situations. Japan is trying to cope with an inflated real-estate market that could collapse more violently than the U.S. market did; Germany's booming economy could be dragged down by the costs of its reunification.

* The picture in the rest of Europe is spotty at best. Although France's economy is chugging along, Britain and Italy are mired in high inflation and slower economic growth.